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Disney Hurt by Tourism Drop-Off

Earnings: Profit tumbles 60% from same quarter last year. Company predicts that more trouble lies ahead.


Battered from the Sept. 11 terrorist attacks, Walt Disney Co. reported one of its weakest quarters since the Persian Gulf War and warned that results for the next quarter could be even worse.

Disney posted a pro forma profit of $132 million, or 6 cents a share for its fiscal fourth quarter ended Sept. 30, down 60% from the same period a year ago, reflecting the severe effect of the attacks that pummeled the travel and tourism industry that drives much of Disney's bottom line.

Pro forma results are adjusted to reflect the sale of the Fairchild Publications division and the closure of the Internet portal.

Revenue fell 5% to $5.8 billion.

For the fiscal year, Disney's pro forma profit was flat at $1.5 billion, or 72 cents a share, on revenue of $25.3 billion. Factoring various charges, including $878 million associated with the shutdown of the Internet portal, Disney posted a net loss of $158 million for the year.

Analysts weren't surprised by the results, which came close to estimates of 7 cents a share in the quarter and 74 cents for the year, according to tracking firm Thomson Financial/First Call.

But they were startled by the company's prediction that operating income will fall 50% in the upcoming quarter, with attendance dropping 25% at Walt Disney World. (Attendance at Disneyland is running ahead of last year because of the opening of an adjacent park, California Adventure.)

"This is going to lead analysts to lower their numbers significantly in the first quarter," said Jeffrey Logsdon, an analyst with Gerard, Klauer Mattison. "It's much more severe than most expected."

Disney Chief Executive Michael Eisner said "recent events make this a particularly challenging and somewhat anomalous time for our company."

But Eisner said Disney's woes are short-term and that it will emerge a leaner more efficient company.

"This company has been through uncertain times before," he said. "But nothing will impact the fundamental value of our assets."

Chief Financial Officer Tom Staggs said Disney plans to save $500 million in the next year through a range of cost-cutting measures, including reducing theme park hours and giving salaried workers the option of working four-day weeks. Disney also recently fired an unspecified number of employees from its struggling Internet Group. Disney cut 4,000 jobs earlier this year.

But Disney has been harder hit than its peers because of its dependence on tourism and travel. Theme parks account for 35% of the company's operating income.

Operating income for theme parks and resorts fell 13% to $313 million in the quarter, with the greatest impact felt at Walt Disney World, where 50% of visitors travel by plane. Hotel occupancies are down about 20% at the resort, officials said.

But the declines were partially offset by gains at Tokyo DisneySea, Disney's new park in Japan.


Disney's media business, which includes the ABC Television network, also took a beating this quarter. The division's operating income fell 12% to $348 million, reflecting the cost of continuous news coverage and commercial-free broadcasts.

Season to date, ABC is down 21% in total audience, ranking it fourth among major networks, and down 13% in adults 18-49--the most important demographic in terms of revenue--tied for third with CBS. Lower ratings mean networks can't charge as much for advertising .

Disney President Bob Iger acknowledged the network's poor performance. "ABC's prime-time ratings have been a disappointment," he said, adding that the network is making scheduling changes to promote new series such as "The Court."

Disney's studio business lost $121 million in the quarter, partly reflecting the write-down of the film "Big Trouble," which was postponed due to Sept. 11 and higher marketing costs.

But the studio will get a nice lift this quarter from "Monsters, Inc.," co-produced with Pixar Animation Studios. The film pulled down $62.6 million in ticket sales last week, the biggest ever opening for an animated film.

Disney stock closed up 38 cents Thursday at $18.84 on the New York Stock Exchange.

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